finance and society when finance met security: back to the

When finance met security:Back to the War on Drugs and theproblem of dirty money

Corresponding author:Anthony Amicelle, Department of Criminology, Université de Montréal, Pavillon Lionel-Groulx, 3150, Rue Jean-Brillant, Montréal (QC) H3T 1N8, Canada. Email: [email protected]

Anthony AmicelleUniversity of Montreal, Canada

Abstract

When and how did the laundering of ‘dirty’ money become an object of public concern, debate,and ultimately policy at the intersection of finance and security? This article sheds light on thesocial construction of money laundering as a public problem in the context of the U.S. War onDrugs during the 1970s and 1980s. By doing so, the article also stresses the heuristic valueof questioning the finance-security nexus through an analytics of public problems. Its aims areto: (1) avoid interdisciplinary debates around the finance-security nexus becoming trapped in azero-sum game between the ‘securitization of finance’ and the ‘financialization of security’;and (2) understand better the emergence, re-configuration, and internal tensions of socialspaces at the interface of finance and security.

Keywords

Dirty money, finance, public problem, security, War on Drugs

Introduction

From news on politics, financial scandals, and crime, to the literature and films inspired by it,references to the laundering of ‘dirty’ money have become so common that the existence,definition, and need to tackle the ‘problem’ all appear self-evident. Yet the conversion ofmoney laundering into an object of public concern, debate, and ultimately policy, remains arelatively recent phenomenon, with the first legislation on money laundering only enacted inthe United States in 1986. While almost every single social fact can in principle become apublic problem, such a process cannot take place anywhere or at anytime (Best, 2016; Neveu,2015). Previous national and international regulatory initiatives to police flows of money inrelation to illicit activities, starting with tax evasion, had been largely ineffective, mainly due toopposition from proponents of bank secrecy (Helleiner, 1999). What prompted the changebeginning in 1986? How might we analyze the framing of money laundering as a public

Finance and Society2017, 3(2): 106-23

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problem? Who did this framing address, and with what consequences? These questions sit atthe heart of the intersection of finance and security that this special issue seeks to address.Does the birth of anti-money laundering constitute a securitization of the financial system byrendering and governing banking activities as a security problem? Or, on the contrary, should itbe interpreted as a financialization of security that empowers financial actors in thegovernance of security?

This article looks at what Foucault (1977: 76) once called “the singularity of eventsoutside any monotonous finality”, in order to understand how ‘dirty money’ has beenidentified, framed, justified, and popularized as a critical public policy issue. Focusing on thesocial construction of dirty money that led to the invention of a new crime, 'money laundering',the article has a twofold purpose.1 First, it aims to provide an original contribution to theresearch tradition on ‘social/public problems’ (Becker, 1963; Best, 2016; Cefaï, 1996;Gusfield, 1980; Spector and Kitsuse, 1977) by outlining what I call the ‘associationalconstruction of public problems’. Second, in connection with interdisciplinary debates aboutthe finance-security nexus (Aitken, 2011; Boy, 2015; de Goede, 2012; Epstein, 2005; Langley,2008; 2013; Martin, 2002; 2007), it stresses the heuristic value of approaching this nexusthrough an analytics of public problems as an alternative to governmentality. Indeed, thefinance-security literature is marked by a pervasive engagement with the governmentalityliterature, including the author of the present article (Amicelle, 2011). This literature hasexamined the “space[s] of the ‘conduct of conducts’, where technologies of government andtechnologies of the self intersect” (Walters, 2011: 15), applied in this instance at the interfaceof the fields of finance and security. Both fields “share a claim to universal applicability in (all)other social fields, resulting in various forms of financialization and securitization” (Boy et al.,2011: 115). The aim here is not to oppose the body of work informed by governmentalitystudies, but to complement it by asking how such in-between spaces can emerge or be re-configured by the social construction of public problems. In other words, the analytics of publicproblems makes it possible to better understand the genealogy of social spaces at theinterface of finance and security, defined either as assemblages (de Goede, forthcoming) orconfiguration (Amicelle, 2017). As will be shown, a focus on public problems makes it possibleto avoid debates on the finance-security nexus becoming trapped in a zero-sum game betweenthe ‘securitization of finance’ and the ‘financialization of security’.

The social construction of public problems by association

How the social facts covered by the notion of ‘money laundering’ became a public problem isnot easy to understand using typical categories of analysis. First, it differs from processesassociated with the extension or expansion of public problems (Becker, 1963; Nelson, 1984).The construction of public problems by extension or expansion can be thought of as the“integration of new issues into a family of ‘problems’ already being addressed, which oftenoffers the advantage, especially for young administrations or new authorities, of consolidatingthe institution, justifying its reinforcement” (Neveu, 2015: 79). Becker (1963) provides anexample of this process with the 1937 case in which the U.S. Federal Bureau of Narcoticsadded marijuana to the list of ‘problems’ it was addressing. By helping to identify marijuana asa public problem, leading to its criminalization, the American Bureau of Narcotics increased itspower and authority. In this context, the social construction of marijuana as a public problemexpanded a generic category – illicit drugs – by adding a new substance to that category. Theidea of construction by association, however, is quite different. It focuses on the operations

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that occur when a social fact or a former public problem is transformed into a new subject fordebate and public action, while constantly being compared to one or more ‘primary problems’.Construction by association with another ‘problem’ cannot be reduced to simply including asocial fact in a generic category requiring public action, such as illicit drugs. Rather, it is aprocess that consists in elucidating a specific issue by systematically connecting it withanother related, but different issue, which can be designated as the ‘primary problem’, or theproblem of reference.

As a social practice, money laundering is the second in a series of actions: it follows aninitial criminal activity in which the ‘dirty’ proceeds of crime that must be ‘laundered’ are firstacquired. In this process, the dirtiness of money refers to other public problems. At firstglance, it seems that the desire to disguise the illegal origin of money could be associated witha wide range of personal and property crimes, including trafficking and white-collar crimes.However, money laundering and the resulting state intervention against ‘dirty’ money werecreated and legitimized in the United States in association with only one ‘problem’: drugtrafficking. While the immediate and exclusive association of dirty money with drug money hasprogressively faded and the problem of laundering has expanded, the early association withdrugs has continued to shape the way financial policing agents think and act.

To understand the long-term effect of such ‘constructive’ association requires a focus onthe configuration of actors and institutions, as well as the larger sociopolitical context, whichcan transform a social fact into an object of public concern and eventually of public policy. Inthe following sections, I first insist on a redefinition of the issue of organized crime thatcontributed to the extension of the ‘War on Drugs’ in the United States, starting in the 1970s. Ithen examine the opposition to efforts to further monitor and control flows of money duringthat same period. Lastly, I shed light on the events that constructed the problem of moneylaundering, and its acknowledgment in the banking industry, by associating it with America’s‘folk devil’ of the 1980s: drug traffickers. The last section shows how the penetration of such asecurity-related issue into the field of finance also reverberated throughout the field ofsecurity. The story told in these sections derives from a documentary analysis based on bothacademic works and official resources from Congress, presidential investigative committeeson organized crime, the American Bankers Association, and federal agencies, such as theDrug Enforcement Agency (DEA).

America's security and its folk devils

While the first half of the twentieth century had seen national conferences and internationalagreements on drugs, the focus on drug trafficking in the United States increased significantlytowards the end of the 1960s.2 Upon his inauguration in 1969, President Richard Nixonimmediately employed war metaphors. “Drug traffic is public enemy number one domesticallyin the United States today”, he declared, “and we must wage a total offensive, worldwide,nationwide, government-wide, and, if I might say so, media-wide” (quoted in Epstein, 1977:174). During the era, the United States already considered dealing with this form of traffickinga priority in domestic and international politics. The committment was especially apparent inthe diplomatic agreement of political representatives on the Single Convention on NarcoticDrugs of 1961, continuing with the Convention on Psychotropic Substances of 1971, and theadoption of the 1972 Protocol amending the 1961 Single Convention on Narcotic Drugs. Therehad been clear support for these types of multilateral initiatives as early as the first opiumconference in Shanghai in 1909, which led to the signing of the international convention at


The Hague in 1912. Friman (1996), examining the United States’ constant involvement in thisdomain, points out, somewhat ironically, that the twentieth century ended the way it began,with the United States fighting drug trafficking. On the other hand, Andreas and Nadelmann(2006) argue that ‘the modern era’ for this fight dates back to the anti-drug campaignlaunched in the 1960s and 1970s. President Nixon’s declaration was a widely accepteddepiction of organized crime because it did not deviate from the ideas of formeradministrations.

Formed and popularized during highly publicized investigative commissions, theunderstanding most Americans had of ‘organized crime’, which had been developing since the1920s, reflected an entrepreneurial image of a mafia-like organization.3 Until the 1940s, theexpression ‘organized crime’ could refer to any activity that was systemic, illegal and rooted inAmerican social, economic, and political life.4 In the context of the Cold War, the publicproblem harboured a parasitic vision of crime as an external threat to a society, withoutinternal contradictions. The process of redefining organized crime obliterated the complexitiesof legal and illegal entanglements by allowing ‘legitimate’ actors, such as law enforcementofficers and economic elites, to get away with nefarious practices, even though a significantchunk of white-collar crime is just as ‘organized’ as trafficking (Sutherland, 1949). Thecommon meaning of organized crime, however, limited business and industry ‘criminals’ to thecorrupt mafia auxiliary, involved only in the service of its activities. Linked to career ‘gangsters’on the margins of society, the idea of organized crime was then constructed and presented asa foreign conspiracy against society, rather than an integral part of it (Woodiwiss, 2003).

The new parameters of the problem outlined a social, hierarchical, and relatively uniformspace, tending to establish a clear-cut boundary between the ‘criminal space’ and the “sphereof legal companies and political institutions” (Briquet and Favarel-Garrigues, 2010: 2). Theimage was of a social, political, and economic order that is host to a parasitic external enemy:a mafia conspiracy that threatens national security through structured criminal organizations.5

In 1960, less than a year before becoming Attorney General, Robert Kennedy, in his book TheEnemy Within, claimed that “if we do not hold a nationwide attack on criminal organizationswith weapons and techniques that are as effective as theirs, they will destroy us” (quoted inWoodiwiss, 2003: 22). Under President John Fitzgerald Kennedy (JFK), the Americanadministration began to view crime as one of the federal government’s main priorities,focusing many of its efforts on the problem of organized crime (Simon, 2008). JFK’ssuccessor, Lyndon B. Johnson, openly used war metaphors, talking about the ‘War on Crime’,although he employed this rhetoric more freely for the ‘War on Poverty’, which he initiated(Simon, 2008).

Crime became a serious national issue in the 1964 presidential campaign, following theKefauver and McClellan investigative commissions, after which controlling it came to be seenas the responsibility of the United States federal government (Andreas and Nadelmann,2006). During this period of partisan competition and public debate, Johnson responded to hisRepublican adversary, Senator Barry Goldwater, by making crime reduction and preventionone of the federal government’s top priorities. The growing concern with crime led to thecreation of the President’s Commission on Law Enforcement and Administration of Justice inJuly 1965 (also known as the Johnson Committee). An ‘organized crime’ working group, as wellas scientists such as economist Thomas Schelling and sociologist/criminologist DonaldCressey, worked to help define the nature of criminal enterprises. The government’s use ofscientists to demonstrate the reality and gravity of the problem contributed directly to theidentification, justification, and media coverage of the actions taken against organized crime.The controversial conclusions of the 1967 report submitted by members of the committee and

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the working group (Hawkins, 1969; Morselli and Kazemian, 2004; Naylor, 1997; Reuter, 1983)confirmed both the meaning given to the expression ‘organized crime’, as well as the sense ofurgency surrounding it. As relayed in a message by President Johnson to Congress in February1968, the conclusions were that:

Organized crime is a society that seeks to operate outside the control of the American people and theirgovernments. It involves thousands of criminals, working within structures as complex as those of any largecorporation, subject to laws more rigidly enforced than those of legitimate governments. Its actions are notimpulsive but rather the result of intricate conspiracies, carried on over many years and aimed at gainingcontrol over whole fields of activity in order to amass huge profits. (Johnson, 1970: 192)

Hawkins (1969) compares this type of statement to a myth, with one of its strengths being itsability to resonate with popular beliefs that are maintained, even reinforced, by the media andcultural productions of the period. This type of statement was so dominant that many socialfigures (elected politicians, industrialists, lawyers of the ruling elites, law enforcement officers,and so on) were able to use it to justify their failures, clear their names of potentialaccusations, and gain additional resources (Woodiwiss, 2003). The next administration, underNixon, followed the previous administration in advocating for greater involvement of the federalgovernment in fighting criminal activity in general, and drug trafficking in particular. Nowconsidered to be the ultimate symbol of organized crime, drug traffickers were the main targetin the ‘War’ declared by the new president in the name of national security. To successfully winthis war, the president looked first to his Bureau of Narcotics and Dangerous Drugs (BNDD)and then turned to the Drug Enforcement Agency (DEA) in 1973.

The BNDD, which had been placed under the authority of the Department of Justice onPresident Johnson’s recommendation, had been created in 1968 as the result of the fusion ofthe Bureau of Drug Abuse Control (previously part of the Department of Health, Education, andWelfare) and the Federal Bureau of Narcotics (part of the Department of the Treasury since1930). Before the restructuring in 1968, which was meant to diminish institutional rivalries,officials from these two federal agencies were among the main entrepeneurs of anti-drugnorms in the United States, both creating and implementing such norms (Becker, 1963). Theefforts of the Federal Bureau of Narcotics, in particular, went beyond the strict application anddefense of the law prohibiting the use of opium for which it had been created. Becker (1963)demonstrates how, with a group of allies, the heads of the Bureau campaigned for theadoption of new federal legislation, this time prohibiting the use of marijuana. While marijuanause had been declining as a social practice, in 1937 it became something different: a publicproblem subject to punitive action. Guided by moral conviction and institutional opportunity ina period of fiscal austerity, the Bureau’s officials actively contributed to the success of the“crusade for moral reform” launched to spread a prohibitionist ideology (Becker, 1963: 171).They accompanied state leaders in promoting a prescriptive movement to influence publicopinion through an information campaign relayed by the media and amplified emotionally infilms such as the 1936 Reefer Madness. The Bureau also provided many of the statistics andother objections that appeared in the conclusions of the investigative commissions onorganized crime over the next three decades.

A new ‘super agency’, the DEA, was created in 1973 to replace the ailing BNDD, whichwas grappling with internal tensions. DEA officers worked alongside the FBI and collaboratedwith border security agents and officers from two other bodies established in 1972, the Officeof Drug Abuse Law Enforcement and the Office of National Narcotics Intelligence. Thesesuccessive restructuring operations, which were marked by an unprecedented increase in


resources, illustrate the status given trafficking, traffickers, and drug users – America’s ‘folkdevils’ – in the early 1970s. As conceptualized by Cohen (1972), the notion of ‘folk devil’ hassince been used “to evoke the image of a scapegoat that symbolically opposes a society … asocial construct that symbolizes evil and instills fear in society” (Sheptycki, 2005: 26).

American finance and the resistance to capital movements regulation

Despite receiving much less media attention, in the early 1970s another set of socialpractices, associated with the financial field, began to be formally subject to a new form ofstate intervention that was as controversial as it was novel. The Bank Secrecy Act (BSA),adopted by Congress in 1970, gave the U.S. Department of the Treasury the authority to seethat banks and their customers met the requirments of a series of laws concerning thedeclaration and conservation of financial information. Banks had to provide a currencytransaction report (CTR) for any transaction greater than $10,000, and keep records of suchtransactions for six years so that they could answer questions in any investigation by thefederal authorities. Financial institutions also had to provide a currency or monetaryinstrument report (CMIR) for any transaction in or out of the country greater than $5,000, andnotify the authorities about any customer holding a foreign account with a foreign bankaccount report (FBAR). The last two situations also had to be reported to the Internal RevenueService (IRS) by the relevant clients, who had to keep a record of this data. Unlike what itsname suggests, the BSA was not aimed at protecting the principle of bank secrecy but insteaddiminishing it (Cuellar, 2003).

In line with its ‘regulatory’ thrust, the BSA criminalized the failure to report transactions.The BSA was aimed primarily at the use of foreign banks to conceal the proceeds of illegalactivity and to evade federal income taxes (Villa, 1988). Though passed at the beginning of thefederal government campaign against the American mafia (Jacobs and Gouldin, 1999), theBSA appears not to have been motivated by that effort (Levi and Reuter, 2005: 296). It wasnot designed, at least primarily, to fight organized crime but, more generally, to curbinternational tax evasion. “The BSA requires businesses to keep records and file reports thatare determined to have a high degree of usefulness in criminal, tax, and regulatory matters”(Internal Revenue Service, 2017: 1). The financial provisions in the Racketeer Influenced andCorrupt Organizations Act (RICO), also enacted in 1970 as part of the Organized Crime ControlAct, were specifically designed to give law enforcement authorities more power to seize assetsassociated with organized crime. At first officials made relatively little use of this additionalpower (Blakey, 1994; Hugues, 2000). But there was an even greater lack of enforcement ofthe BSA, which was very negatively received in the financial sector. Bankers claimed it unfairlyinterfered with their professional activities and it took a decade before the legislation wasimplemented.

It is important to consider the significance, or at least symbolic effect, of the BSA. Prior to1970, banks were not obligated to inquire about customers’ cash deposits or othertransactions. Although they would probably have had to participate in any ex-post investigation,the consequences would have been minor. After 1970, financial institutions that refused tocomply with the BSA could be prosecuted, as the act made such neglect punishable by law.Because this new legislative directive affected bank secrecy, it was met with considerableresistance, especially since tax evasion had nowhere near the same public status as drugtrafficking, which remained public enemy number one.

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Bank secrecy was deeply entrenched and one concern was that even the slightestinfringement of this principle would lead to stigmatization of state action with regard to flowsof money rather than mobilizing people in its favour. Bankers claimed that their customers’right to privacy from the state were being violated (Levi, 1991), and the partial infringement ofbanking customers’ confidentiality led to a great deal of criticism. Banks voiced their concernover customers’ uneasiness with the situation as well as the bureaucratic burden of the recordand reporting system inherent in the BSA. One of the recurring themes following the law’senactment and the debates associated with it was the increased work associated with the newresponsibilities that banks had to take on. Members of the U.S. Congress tried to reassureconcerned individuals by reminding them that the government was committed to avoiding anymeasures concerning financial activities or other elements that could disrupt internationaltrade (American Bankers Association, 2008). The officer in charge of the case at theDepartment of Justice, Will Wilson, offered similar support when he declared that the objectiveof the act was “to detect and prosecute crime, not build a mountain of paper” (quoted inAmerican Bankers Association, 2008: 54). Tensions emerged between those wanting to keepthe existing banking practices and those who felt it was important to impose new regulatoryrequirements on financial flows. These tensions continued even after the adoption of the BSA,with bank representatives supporting and initiating legal challenges.

In 1974 the California Bankers Association and several other groups of plaintiffschallenged the constitutional validity of the BSA. They argued that its requirements were toodemanding and that it infringed their customers’ privacy. In 1976 the U.S. Supreme Courtrejected the California association’s appeal, which had been backed by the American CivilLiberties Union. However, on the same day, the Court concluded that customers had beenstripped of several privacy rights pertaining to information held by their banks. In response tothis Supreme Court ruling, as well as several other judgments, in June 1977, several membersof Congress introduced the Right to Financial Privacy Act, which was adopted a year later. Theact had three main provisions intended to end the protests against infringement of privacyrights in the financial industry. First, law enforcement inquiries had to be justifiable and thecustomer had to be notified by the federal agency before the inquiry was conducted. Second,the customer could contest any request for information by public authorities. Third, federalagencies had to keep a written record of any customer data consulted and document anyinformation they shared with other agencies. This policy reversal angered some, who saw it asan obstacle to their investigations (Electronic Privacy Information Center, 2003).

The Right to Financial Privacy Act became important when DEA agents and theircolleagues from other departments started to show a growing interest in strengtheningmeasures to crack down on crime proceeds (Levi, 1991), repeatedly arguing that it wasimportant to follow the money trail in order to disrupt what they saw as organized crimepyramids. Guided by a parasitic and entrepreneurial vision of criminal organizations, thestrategic approach of targeting money flows was gradually implemented to help defeat druglords, as simply arresting them would be insufficient to deal with drug trafficking. This was theclaim made by the former administrator of the DEA, Peter B. Bensiger, before the U.S.Congress in 1978:

We recognize that the conviction and incarceration of top-level traffickers does not necessarily disrupttrafficking organizations; the acquisition of vast capital permits regrouping and the incarcerated traffickercan continue to direct operations. Therefore, it is essential to attack the finances that are the backbone oforganized drug trafficking. (quoted in Naylor, 2004: 162)


Operation Greenback, launched in Miami in 1980, was the first anti-drug initiative tobring together officers from several federal institutions (Customs, Department of Justice,Department of the Treasury, and the IRS) to take advantage of the opportunities provided bythe BSA (President’s Commission on Organized Crime, 2001). In addition to its ability todisrupt operational efficiency, customs agents identified provisions in the law that offered away back into the ‘game’ in the fight against drugs and made it possible to intervene in othertypes of inquiries. Following the money trail also allowed tax authorities to reaffirm their placein large-scale criminal investigations, linking them symbolically with the celebrated ‘PatronSaint of the IRS’, Elmer Lincoln Irey, and his ‘T-Men’, who, among other things, had helpedbring down Al Capone for tax evasion in 1931 (Irey and Slocum, 1949; Smith, 2013).6 Analliance, beyond the moral position of preventing criminals from profiting from theirwrongdoings, slowly began to form around a policy focused on making money the target in theWar on Drugs. The key to success would reside in locating, tracking, confiscating, and seizingcrime proceeds. From the ideological perspective of the rational actor (Schelling, 1971),disrupting the flow of illicit capital places a burden on any ‘criminal enterprise’ as it targets itsprimary motivation – money. This deterrent was reinforced by the belief that, without workingcapital, setting up new criminal operations becomes much more difficult, sometimes evenimpossible. Indeed, “the motivation appeared to be partly fear of what the money might fundand partly a belief that stripping criminals financially might deter them” (Levi and van Duyne,2005: 16).

The emphasis placed on drug money and criticism of the Right to Financial Privacy Actintensified and increasingly resonated within the government after Ronald Reagan took office1981. As we will see below, the process of reconstructing the problem of illicit money throughits association/reduction to drug trafficking evolved quickly and became explicit following amedia scandal at the intersection of disparate professional representations and interests. Thisprocess ultimately led to the emergence of a new crime – money laundering – in which moneysheds its ontological neutrality and ‘odorless’ character, coming out as officially ‘dirty’ in courtcases and media coverage (Mitsilegas, 2003).

The associational construction of money laundering as a crime

According to Gilmore (2005), the phrase ‘money laundering’ was first used by the police in theearly 1970s. It received a great deal of attention during the Nixon Watergate scandal, with itsrelated financial crimes. The phrase was clearly not used for drug trafficking alone, but wasemployed by the press to evoke “a veritable catalogue of illegal activities and abusesconceived and directed by the President and his men” (Bernstein and Woodward, 1974: 5). Itwas first mentioned in court cases and official reports only in 1982. The Money LaunderingControl Act of 1986 made ‘money laundering’ an official object of public policy as a crime, andwas the first U.S. legislation to specifically refer to the recycling of crime proceeds. Thislegislation is therefore fundamental in understanding the meaning attributed to the notion ofdirty money.

Many years before ‘money laundering’ became police jargon, a term used by the media,and an activity introduced into the criminal code, it referred to a set of older techniques(Naylor, 2004). The phrase may have emerged in the 1970s but it was inspired by mythsdating back to the Prohibition era in United States, between 1919 and 1933. One of the mostfamous stories in mafia folklore is that Al Capone and other gangsters invested their illegalprofits in launderettes so it would look ‘cleaner’. More generally, many individuals andorganizations, seen as legitimate, have been able to devise ways, whether only once or

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systematically, to hide capital generated by transgressing political, economic, commercial, orfiscal laws. If there was anything new in 1986, it was government officials deciding that thesevarious money laundering techniques were a problem. This novelty was, however, based on aselective principle, as the only money targeted was proceeds from drug trafficking.

The Money Laundering Control Act went hand in hand with the Anti-Drug Abuse Act, aproduct of Reagan’s 1983 President’s Commission on Organized Crime, and was signed intolaw almost 20 years after Johnson’s commission. The commission focused on the U.S.’sinterests in Latin America (Friman, 1996), and its final report presented the laundering of drugmoney as a significant problem and provided recommendations for dealing with it. Beyondidentifying the problem and explaining how to intervene, there was also a clear attempt toframe the problem. As Entman (1993: 52) explains, “To frame is to select some aspects ofperceived reality and make them more salient in the communicating text, in such a way as topromote a particular problem definition, causal interpretation, moral evaluation and/ortreatment recommendation for the item described”. The Reagan Commission reporthighlighted systematically the dynamics of laundering associated with ‘drug money’,suggesting that traffickers had both mastered the art of controlling and disguising illicit moneyand monopolized the technique. Limiting the characterization of the dirty money problem toAmerica’s folk devils conflicted with the scope and variety of issues potentially covered by theBank Secrecy Act of 1970. The final report of the Reagan Commission included theconclusions of a preliminary report from 1984, which had examined only the financial aspectsof money laundering, and was entitled ‘The Cash Connection: Organized Crime, FinancialInstitutions, and Money Laundering’ (President’s Commission on Organized Crime, 2001).

A few months before the publication of the Commission’s last report, Reagan declareddrug trafficking an existential security threat to the United States, reviving the War on Drugsrhetoric that the two previous administrations, those of Presidents Gerald Ford and JimmyCarter, had ignored. Simon (2008) highlights the importance of Reagan’s use of the warmetaphor, which hearkened back to Franklin Delano Roosevelt’s term as president from 1933to 1945. Whether dealing with cancer, poverty, crime, drugs, and later terrorism, several ofRoosevelt’s successors in turn described a supposed existential threat to the nation-state thatcame from a monstrous, abnormal enemy capable of penetrating to the very heart of theordinary American’s life. At the same time, they called for centralizing government resourcesand mobilizing them against the declared enemy, which they portrayed as defeatable onlythrough coordinated and complex strategies integrated on a federal level (Simon, 2008).

President Reagan employed Roosevelt’s evocation of this ‘enemy’ during his two terms inoffice, declaring the War on Drugs a ‘national security’ issue (Helleiner, 1999). This led todeliberations about the status of bank secrecy, seen on one hand as a professional duty,including a right to privacy, and on the other as interferring with the War on Drugs (Levi, 2002).These deliberations eventually resulted in the invention of a new crime – money laundering –and new regulatory intervention of the state in banking practices. However, this stateinterventionism occurred in a hostile context. Following the collapse of the Bretton Woodssystem during Nixon’s administration, Reagan’s presidency saw the development of a policy,and even a general sense of a movement, often qualified as ’neoliberal’, towards financialliberalization and an international surge in flows of capital due to the dismantling of nationalcontrols. At first glance, the demonstrated desire for increased federal regulation of flows ofcapital did not align with Reagan’s position, presented in one of his more famous quotes:‘Government is not the solution to our problem; government is the problem’. There was also alegal context created by the Right to Financial Privacy Act, and some banks refused to considerfinancial activities in terms of security and fighting crime. However, increasing recognition of


the efficacy of the ‘follow-the-money’ strategy eventually led to the creation of another area oflegitimization that contributed to an acknowledgement of the problem of money laundering inthe financial industry and, to a lesser degree, the need to provide solutions to it.

The Bank of Boston scandal: Cross-colonization of finance and security

During the 15 years that followed the adoption of the Bank Secrecy Act in 1970, electedpoliticians and law enforcement officials condemned the constant lack of cooperation frombanks and the financial industry. Their frustration was clearly articulated in the congressionalreport that accompanied the Money Laundering Control Act. Its authors expressed regret that

… unfortunately, the hearings on money laundering, beginning with the Bank of Boston hearing in April1985, have shown that a major law enforcement tool [the BSA] has been rendered a virtual nullity by anindustry that didn’t seem to care and by a regulatory structure that proved to be ineffective. (AmericanBankers Association, 2008: C11)

To remedy this situation, non-compliance sanctions were made more severe and bankers wereconstantly reminded of the moral impossibility of acting as intermediaries, rather thanenemies of America’s ‘folk devils’. Although the scope of the BSA’s provisions extend wellbeyond drug trafficking, in the 1980s, the consequences of not applying the law wereinterpreted only through the prism of this ‘primary problem’. Financial institutions thatattempted to maintain a hardline attitude towards bank secrecy and a lax attitude towardsorganized crime ran the risk of appearing to contravene measures being promoted againstlawbreakers. The ethical argument was supported by a narrative based on the devastatingrepercussions, in both image and reputation, for banks if they did not comply with the law orwere considered non-cooperative with criminal investigations. The Bank of Boston case is agood example of this. In 1985, bank executives pleaded guilty to failing to report a total of$1.22 billions worth of transactions with foreign banks of more than $10,000 between 1980and 1984 to the IRS. The bank was fined $500,000 for violating the Bank Secrecy Act, ameager sum compared to the billions that had not been declared, but the legal issue also, andmore importantly, attracted a great deal of negative media attention. There had been relativelylittle media coverage of this problem up to this point, especially in print media (Nichols, 1997),but the Bank of Boston case brought public attention to money laundering issues.

Nichols (1997) demonstrates that the Bank of Boston scandal, rather than simply one ofmany examples, became a landmark case that contributed to justifying money launderinglegislation. Legally, the bank had been accused only of failing to declare transactions over$10,000 under the BSA. However, the failure to report was quickly portrayed by the Americanmedia as synonymous with money laundering. It was associated with organized crime and withdrug trafficking – although without any proof – rather than with international tax evasion. Theemotions raised by the case also contributed to framing, justifying, and the popularizing theproblem of dirty money. The rhetorical exercise of taking one of many cases of undeclaredtransactions and turning it into a national money laundering scandal was based on statementsmade by federal experts and relayed by the media. These individuals, whether part of theTreasury or Justice Departments or Reagan’s administration in general, possessed theinstitutional authority that allowed them to frame the situation as problematic. In addition, inconclusions to the President’s Commission on Organized Crime (1984), prosecutor WilliamWeld and Assistant Secretary of the Treasury John Walker once again declared that theyclearly supported the idea of a logical link between violation of the BSA and the problem of

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organized crime and drug trafficking. According to Nichols (1997), from this point onjournalists who reported the Bank of Boston’s failures established a direct relationshipbetween missing documents and violent crimes, making the reporting of financial transactionsa question of life or death. In this selective narrative about the Bank of Boston scandal, mediaprofessionals assumed the role of intermediaries, accelerators, even co-producers of theprocess of construction by association of the public problem of laundering dirty money.

Fifteen years after the adoption of the BSA, the offenses committed by the sanctionedfinancial institution were far from exceptional among banks and could also be attributed tonegligence, or even to the absence of federal authorities to enforce the law. The financialpolicies Reagan promoted when he first took office and the cuts made to regulatory agenciescertainly did not reverse the trend. In this context, why did the Bank of Boston case becomesuch a unique scandal “heard more or less around the world” (Palmer, 1985: 25)? Nichols(1997: 333) argues that this case “served basic goals of law enforcement and mass media”.On the one hand, the timing and nature of the case were opportune for law enforcement tosend and spread a new message about dirty money and follow-the-money methods. On theother hand, the combination of transactions reporting failures with issues of corporate non-compliance, organized crime and drug trafficking was seen as a critical story by newsworkers.“In other words, although the construction of the case as a landmark narrative was in a sensearbitrary, the particulars of the case were well suited to presumed interests of majorsclaimsmaker groups” (Nichols, 1997: 333).

Indeed, the political context played a major role in the naming and shaming of the Bankof Boston, while other establishments had slipped through the cracks while committing similarpractices in the past. 1985 was when members of the federal administration formally decidedto crack down on the financial side of organized crime. Furthermore, political activities duringthe period leading up to the mid-term elections for the Congress and Senate in 1986 alsohelped make drug trafficking and everything associated with it a public problem and a priorityfor elected officials as well as in the media and public opinion polls (Reinarman and Levine,2003). The prosecution of the Bank of Boston was a warning to all banks that liberalization inthe financial sector no longer excluded them from having to adhere to reporting requirements.

The contradiction was apparent only because these requirements were considered adirect consequence of financial deregulation. The aim was not to make drastic changes in howthe existing banking system functioned, nor to take on all of the illicit flows of money, but totarget the folk devils’ money. The Reagan administration presented their actions as a way tolimit the access of crime organizations, especially to financial institutions. In this context, theso-called neoliberal turn of the 1980s did not entail a regulatory retreat. The redeployment ofstate intervention was aimed at accompanying and facilitating the liberalization of capitalcontrols while reserving its benefits to ‘legitimate’ capitalist actors and excluding the‘undesirables’ (Helleiner, 1999). The Bank of Boston scandal erupted one year after theReagan presidential commission on money laundering published its mid-term report on the‘cash connection’. The authors of this report recommended making money laundering a crimeand ending the current complacency in enforcing the BSA that had led to prosecuting onlyfailures to report and keep records (President’s Commission on Organized Crime, 2001). Usingthe same criticism that had been used against the Right to Financial Privacy Act of 1978, theirfinal report in 1985 also emphasized that officials from the DEA, FBI, IRS, Customs, and theDepartments of Justice and the Treasury supported the criminalization of this social practice,which was akin to extending federal powers in the financial sector (Nichols, 1997).Coincidentally, these bureaucratic considerations aligned with how the media was presentinga story that was seen as having exceptional news and commercial potential. As a result, many


print publications relayed comments from official sources and dramatized the relatively trivialBank of Boston case as an unprecedented scandal, while highlighting the passing of theMoney Laundering Control Act of 1986.

By making money laundering a federal crime in a stronger legislative weapon againstdrug trafficking, the 1986 act emphasized the obligations of industry players and penalizedany actor offering financial services that facilitated the integration of money from an illegalorigin into the legal economy. As a result, this type of operation became risker and there was agreater willingness to cooperate with the appropriate authorities. The legislation also amendedprovisions in the Right to Financial Privacy Act by authorizing the postponement of notificationof bank customers who were being monitored as part of an investigation into drug traffickingor espionage. In light of these changes and the links made between the Bank of Bostonscandal, regulatory non-compliance, and drug money, many banks began working more closelywith regulatory agencies, and ‘oversight’ was acknowledged in order to avoid being the nextlegal, political, and media target. From 1985 to 1986, the number of monthly declarationsmade as part of the BSA rose from 68,000 to 270,000 (Nichols, 1997). “Fear of crime ha[d]been converted into fear of not reporting a fellow citizen” (Levi and van Duyne, 2005: 17).

While continuing to criticize legislative developments and policing practices, banksbecame concerned about the consequences of this type of bad publicity. In 1986, EugeneRossides, former Assistant Secretary of the Treasury (1969-1973) and now a business lawyerfor a major law firm, sent a written statement to Congress outlining the banking industry’sstance on the issue.

First, while money laundering is a serious problem that must be vigorously addressed, it does notnecessarily follow that imposing broad new requirements upon banks will solve the problem. Second, Ibecome concerned when I see the law enforcement community shifting its focus away from drug traffickersand others in organized criminal groups and preoccupying itself with reporting failures by banks. (quoted inAmerican Bankers Association, 2008: C11).

Despite its defensive tone, this two-point argument highlights the results of the process ofreconstruction by association of the public problem of dirty money. While the solutions to theproblem remained hotly debated, the problem itself was now seen in the banking world aslimited to only one ‘primary problem’ (drug trafficking), rather than the international taxevasion that was so broadly targeted by the BSA. From this perspective, since moneylaundering was now part of public policy, banks needed to embrace the War on Drugs to avoidbeing questioned and associated with tax evasion issues.

At the same time, the parameters of the drug money problem were changing. It was nolonger associated only with a general threat to the nation-state. It was now also a specificthreat to the financial system through issues such as financial integrity and financial stability.While financial integrity refers to the capacity of the financial system to be protected fromcriminal misuse, particularly from a reputational point of view, financial stability refers to theprotection of the financial system from stress, turmoil, and shocks (Amicelle and Jacobsen,2016; Boy, 2015).

Liberals recognize that money laundering can pose a potentially serious threat to financial stability. Whenfinancial institutions or markets are found to have close links to individuals in these kinds of serious crimes,the public confidence on which financial systems depend can be rapidly undermined … Financialinstitutions, thus, have a self-interest in complying with money laundering regulations in order to preservetheir ‘reputation’ for trust and security in the marketplace for noncriminal financial business. (Helleiner,1999: 59).

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Because of the sums infiltrating the legal economy through these institutions, drugmoney was seen as compromising public confidence in the financial system, as well ascustomers’ trust in their banks. However, this argument has been strongly criticized, startingwith van Duyne (2003: 101-102), for whom “One of the dogmas fuelling the fight againstlaundering is the frequently repeated claim concerning the corruptive impact of crime-moneyand laundering on the integrity of the financial system … If it applies to the financial system italso applies to the automobile industry, real estate, tourist offices...” In a similar vein, Levi(2002) notes that bankers laundered money for centuries from numerous crimes andcountries without apparent prejudice for them or the financial systems and nationaleconomies. Ultimately, van Duyne (2003: 101-102) suggests the impact of dirty money onboth financial integrity and stability is an untested ‘metaphysical dogma’, “behind which onecan discern a heavy dose of opportunism” to stifle potential doubts accross the financialindustry. Following Hülsse (2007), this metaphysical dogma takes the form of a self-fulfillingprophecy. In this respect, it is less money laundering practices as such that may have anegative impact on banks and the financial system than the social construction of moneylaundering as a public problem. By the mid-1980s, dirty money may really impact any bank(Hülsse, 2009: 186).

Whether valid or not, the financial integrity/stability argument has had performativeeffects in two ways. On the one hand, it was hard for financial actors to maintain a victimimage following the 1986 law, because banks now appeared to be more and more likeaccomplices in money laundering (rather than victims who had been deceived into offering uptheir services). It was therefore better for them to condemn all business relationships with the‘folk devils’ and accept that financial activities should also be managed as security problems.Banks therefore started to admit that anti-money laundering initiatives were, in one way oranother, not only justifiable but necessary and even in their self-interest. It is here that aspecific finance-security space of the ‘conduct of conducts’ has taken shape, “wheretechnologies of government and technologies of the self intersect” against the problem of dirtymoney (Walters, 2011: 15). On the other hand, it was also at this moment that the financialintegrity/stability argument began to fragment the referent object of security, specifically byintroducing the protection of financial order next to the protection of public order and theNation-State. While the new 1986 legislation was still not fully accepted, its integration acrossthe banking industry was facilitated because the Department of the Treasury was responsiblefor implementing it. The cross-colonization of the fields of finance and security was underway.

Conclusion

What brought the understanding of money laundering in the United States to the point that anarray of social actors, starting with players from the security and financial fields, rallied behindpublic actions that justified transgressing the principle of bank secrecy? In what context andfrom what angle did this relatively old social practice, which has occurred at various levels insociety – including the head of state, as seen in the Watergate scandal, for example – becomethe crossroads for a range of public, private, political, bureaucratic, media, security, andfinancial interests? Ultimately, the answer to both questions can be found in the associationalconstruction of the dirty money problem.7

In 1970, the BSA restricted bank secrecy, a policy deemed unacceptable by banks, whichresisted its implementation and even challenged its legal provisions in court. This opposition,which had been tolerated for 15 years and even occasionally backed by the American CivilLiberties Union in the name of privacy, lost its support when it began to be interpreted as a


form of cooperation with America's folk devils. The gradual acknowledgment of the problem,which relied on beliefs and representations about organized crime, and increased action indealing with it through the criminalization of money laundering, arose from its symbioticrelationship with drug trafficking. While this acknowledgment occurred through the almostexclusive association of money laundering with the politically motivated War on Drugs, it canalso be explained by the dissociation of laundering from other financial crime issues.Justification for the infringement of bank secrecy, which combined moral and politicalconvictions with various professional interests, was all the more acceptable because it waslimited to only one type of customer and one kind of illicit flow of money, unlike the provisionsof the BSA. Only the category associated with drug trafficking was targeted by unprecedentedfinancial policing. This process of associational construction undoubtedly spurred thecontinuous expansion of money laundering into other categories, both in the United States andinternationally, which has taken place since the end of the 1980s. As a nod to the BSA, thelast category of social actors added to the international anti-money laundering framework wastax evasion in 2012. Nevertheless, current research on the application of the anti-moneylaundering framework still tends to show that the focus is in line with current national securitypriorities – that is, on money made from drug trafficking as well as terrorism and terrorist-related money.

In theoretical terms, analyzing dirty money as a public problem helps us avoid becomingtrapped in a zero-sum game between securitisation and financialisation. Instead of a linearand one-way process of colonization of one field over the other (‘securitization of finance’ or‘financialization of security’), it is possible to apppreciate the cross-colonization of finance andsecurity logics in the policing of financial activities. Since 1986, the problem of dirty moneyand the orientation toward financial policing have emerged through a plurality of intersectingintentions, stances, and representations, resulting from a series of collaborations andconfrontations between interdependent actors from the fields of finance and security. Theevocative power attached to the malleable notion of ‘dirty money’ resides in the fact that itremains the meeting point of a constellation of interests; the term’s unclear boundaries alloweach group’s priorities to fit within the confines of policing. Aside from specific influences fromone politician or another, or from a specific national context, the configuration of financialpolicing depends largely on this tension between finance and security. As Helleiner (1999: 69)remind us,

… this pattern of regulatory action has been pursued in order to enable states to curtail illicit financialmovements effectively without undermining their commitment to financial liberalism. In fact, the tensionbetween financial liberalism and the prohibition of illicit financial activity has not been entirely eliminated.

Following de Goede’s (2010: 106) third avenue for studying finance and security, bothdomains demonstrate a “profound conceptual [and political] entanglement” in face of theproblematization of dirty money. As a result, it is impossible now to disentangle financialsecurity from (inter)national or societal security. At the same time, the dynamic tensionbetween protecting the financial system and repressing any kind of financial crime seemsdifficult, if not impossible, to resolve. While the ‘securitization of finance’ and the‘financialization of security’ overlap and reinforce each other, this does not mean that inpractice the protection of the current financial order goes hand-in-hand with the policing ofillicit money flows.

120Amicelle

Notes

1. On the historical link between money and dirtiness, see Peebles (2012).2. The most significant international agreements from the early twentieth century are the

International Opium Commission of 1909 in Shanghai; the International Opium Convention of1912; the Second Opium Conference of 1925 in Geneva; the Convention for Limiting theManufacture and Regulating the Distribution of Narcotic Drugs of 1931; the Agreement concerningthe Suppression of Opium Smoking of 1931; and the Convention for the Suppression of the IllicitTraffic in Dangerous Drugs of 1936.

3. The main investigative commissions prior to Richard Nixon’s presidency were the WickershamCommission in 1931; the Kefauver committee in 1951; the McClellan committee in 1963; and theJohnson committee in 1965. For more on this topic, see Scherrer (2009).

4. For a history of organized crime in the United States, see Woodiwiss (2005).5. For a critique of this parasitic vision, see Chambliss (1978). The ‘organized’ character of crime has

also been moderated by research demonstrating that the size and extent of criminal associationshave frequently been overestimated. For more on this topic, see Reuter (1983).

6. Before the IRS’s intelligence unit had to compete with other agencies in its fight against the mafia,the IRS had been one of the pillars in the fight against organized crime, as dramatically depicted inAmerican propaganda films from the 1940s. See Caporossi (2007).

7. Developed to explicate the social construction of the dirty money problem at the interface offinance and security, the idea of ‘associational construction’ could also be beneficial in other fieldsof research and other subjects of study in the social sciences.

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